To some economists and commentators the monthly report from the National Australia Bank on business conditions and confidence comes as ’new’ news as they show both are at or close to decade long highs, or well above long term averages for the long running monthly survey.
The strong results are greeted as signs the economy has ‘picked up’ or ‘rebounded’, or as we saw yesterday with a couple of reports, ‘regained its feet’.
Well, no, it’s nothing of the sort. The NAB’s monthly reports have shown business conditions have been the strongest for a decade or more now for a number of months and business confidence is improving to the point where it is at multi-year highs.
The NAB surveys more than 400 firms each months for its survey of conditions and confidence and the answers the bank got back in May were unequivocal – the index of business conditions 4 points to +15, far above the long-run average of +5. And the survey’s measure of business confidence added 1 point to +9, again well above long-run average.
“Most industries are performing well in the survey, which reflects positively on the broader economic environment,” NAB chief economist, Alan Oster said in a statement with the survey.
"The lift in conditions was largely driven by stronger trading conditions and profitability, suggesting a much needed lift in demand, while employment conditions were steady."
“We continue to be pleasantly surprised by just how upbeat the business sector is, given the context of a fairly beleaguered household sector that has been weighed down by limited wages growth and record levels of debt.
"In fact, there is even tentative evidence that we are now starting to see some positive spill-overs from the business sector to the broader economy,” he added.
The survey’s measure of sales jumped 6 points to a very strong +21 in June, while business profits rose 5 points to +15, while its measure of employment held steady at +7, again above average.
NAB said that outcome was consistent with annual job creation of around 240,000, or around 20,000 per month, and was enough to nudge the unemployment rate lower from the current level of 5.5%.
That supports the series of buoyant labor force from the Australian Bureau of Statistics so far in 2017 which have shown a clear rebound from the indifferent performance in 2016.
Forward orders also added a point to +4, suggesting the improvement is sustainable.
And there was little sign of inflationary pressure in the survey, with labour costs subdued. Retail prices turned higher after a drop in May, though grew at a modest 0.5% for the second quarter as a whole, according to the NAB.
The NAB said in commentary that "These upbeat outcomes are in stark contrast to some of the trends evident in the household sector, but recent reads from the retail industry and labour market could see the disparity resolve itself favourably.
"We expect economic growth to accelerate in H2 2017, following weather related disruptions in H1 this year, but the longer-term outlook could easily underperform the RBA’s upbeat expectations as important growth drivers (LNG exports, commodity prices and housing construction) begin to fade.
"Given the risks to the outlook, signs of moderation in the housing market, and a reluctance to see the AUD strengthen further, the RBA should be content with keeping interest rates on hold for an extended period (mid 2019). That said, the recent flow of economic data has been more encouraging and, if maintained, could soon signal a shift in the balance of risk,”The bank’s economics team said.
Meanwhile the May housing finance figures yesterday from the Australian Bureau of Statistics confirmed that the crack down on interest only loans was having an impact.
While the number of home loan approvals rose a seasonally adjusted 1% in May, that missed the market forecast for a 1.5% lift.
But the shortfall was mainly due to loans for investment housing falling 1.4% over the month, while loans approved for owner-occupied housing rose 2.9%.
The value of total housing finance rose 1.3% to $33.03 billion in the month, seasonally adjusted, according to the ABS.
Banks have been lifting their interest rates on interest-only mortgages to meet regulatory requirements aiming cooling the boom in investor lending and it is working.
The NAB says it will released updated economic forecasts for the economy later today.
